OCC's Gould Fleshes Out Goals for Core Provider Review

Why It Matters

Concentration in core‑banking providers threatens competition and raises compliance costs for community banks, prompting regulators to consider AI‑enabled solutions and policy reforms. The outcome could reshape vendor dynamics and risk‑management expectations across the banking sector.

Key Takeaways

• OCC investigates core banking provider concentration.
• AI proposed to aid small banks' negotiating power.
• Three providers control over 70% of core market.
• No policy changes yet; fact‑finding continues.
• Regulators consider revising third‑party risk rules.

Pulse Analysis

The OCC’s renewed focus on the core‑banking ecosystem comes after a 2024 Federal Reserve study highlighted that three vendors dominate the market, locking out smaller banks with rigid contracts and high switching costs. By issuing a formal information request last November, the agency signaled that it views this concentration as a systemic risk, especially as banks remain accountable for downstream operational failures. This fact‑finding phase is critical because it gathers granular data on fee structures, billing errors, and due‑diligence challenges that have long been opaque to regulators.

Artificial intelligence emerged as a central theme in Jonathan Gould’s remarks at the ABA Washington Summit. Gould envisions AI‑driven analytics and automation helping community banks negotiate better terms, streamline core conversions, and monitor vendor performance without the need for large in‑house tech teams. While AI promises efficiency gains, the OCC cautions that its benefits must be broadly accessible, lest the technology reinforce existing disparities by favoring banks that can afford sophisticated AI platforms. The agency’s interest in AI reflects a broader regulatory trend of leveraging emerging tech to level competitive playing fields.

Looking ahead, the OCC has not set a timeline for formal rulemaking, but it is actively consulting with both banks and major service providers. Industry groups have urged a revision of third‑party risk‑management standards to reflect the power imbalance, and an OIG audit recommends a new risk‑ranking methodology by 2026. If the OCC adopts AI‑centric tools or tighter oversight, community banks could gain leverage in contract negotiations, reduce compliance burdens, and potentially spur market entry by smaller vendors, reshaping the core‑banking landscape for years to come.